Alibaba beats forecasts again, takes stake in affiliate Ant

Alibaba Group Holding Ltd, China’s biggest e-commerce company, said on Thursday its third-quarter revenue jumped 56 per cent, beating expectations as it shrugged off concerns about a wider market slowdown.

The group, which also raised its forecast for the year ahead, will take a 33 per cent stake in payment affiliate Ant Financial, an important step ahead of an expected initial public offering (IPO) by Ant, valued at $60 billion in 2016.

“This is no secret, everybody knows that Ant Financial will IPO, and (buying the stake) is just something they had to do before that happens,” Beijing-based analyst Li Chengdong said.

The strong growth and the move to bind itself more closely with Ant – which operates hugely popular online payment system Alipay – comes as Alibaba looks to fend off rivals in its core e-commerce business that analysts expect will start to weigh on growth.

Alibaba has, however, been defying expectations.

Revenue for the October-December period rose to 83.03 billion yuan ($13.19 billion), up from 53.2 billion yuan a year earlier. That exceeded the 79.8 billion yuan average estimate of 28 analysts polled by Thomson Reuters.

The company also raised its 2018 revenue forecast to growth of 55 to 56 per cent, up from 49 to 53 per cent.

The deal with Ant, which will replace the current system where Alibaba receives 37.5 per cent of Ant’s pre-tax profit, will see the company acquire newly-issued equity in the affiliate in exchange for certain intellectual property rights it owns.

The deal will have no cash impact on Alibaba, it added.

“Importantly, an equity stake in Ant Financial enables Alibaba and our shareholders to participate in the future growth of the financial technology sector,” Alibaba Chief Executive Officer Daniel Zhang said in a statement.

Alibaba is looking for new areas such as cloud computing, payments and offline retail to maintain rapid growth rates that helped its shares roughly double in value last year, making it one of the world’s most valuable companies with a market capitalisation of $523 billion.

The company’s third-quarter sales are typically strong because of its Singles’ Day sales event held on Nov. 11, the world’s biggest shopping spree. This Singles’ Day, a record $25.4 billion was spent on Alibaba platforms.

Core commerce revenue in the third quarter rose 57 per cent year-over-year to 73.24 billion yuan.

Alibaba, and other tech rivals in China such as Tencent Holdings Ltd (0700.HK) and JD.com Inc (JD.O), have also been investing heavily in brick-and-mortar retailers over the last year to expand offline.

Analyst Li said the growth of users on Alibaba’s platforms was slowing down. “Alibaba is relying more and more on acquisitions for growth,” he added.

Net income attributable to shareholders rose to 24.07 billion yuan, up 35 per cent from the year-earlier quarter. That compared with the 21.5 billion yuan estimate of analysts surveyed by Thomson Reuters.

Alibaba’s cloud business crossed 1 million customers globally in the quarter ended September, and has recently opened new data centres in Malaysia and India.

Cloud computing and offline retail make up a comparatively small fraction of the company’s current sales, though Alibaba is betting on these units to become major revenue drivers as the Chinese e-commerce market shows signs of saturation.

Alibaba’s shares fell 3.7 per cent to $197.81 on Thursday morning on the New York Stock Exchange.